Treasury Secretary Scott Bessent is seen by Wall Street analysts as potentially rebuffing calls for clearer guidance on US debt sales, with strategists at JPMorgan, led by Jay Barry, suggesting that the Treasury should remove "at least" from its forward guidance. This move is influenced by political dynamics aimed at preventing a rise in yields before the upcoming election, and Bessent's prior focus on lowering long-term yields. JPMorgan analysts also foresee a "funding gap" starting in fiscal year 2027, with cumulative debt between 2027 and 2030 projected at $3.7 trillion, indicating that current auction sizes may not be sufficient to raise fresh cash as debt matures.
Bond traders are expressing significant concern, with the cost of hedging against rising Treasury yields surging. After long-bond yields climbed to a 19-year high, traders have been heavily investing in Treasury put options for both 10- and 30-year bond futures. This comes as the Federal Reserve has held off on an interest-rate hike, leading investors to question Chairman Kevin Warsh's commitment to combating inflation and highlighting the risk of greater volatility in the $31 trillion market.
Bessent's actions, alongside Chairman Warsh's, are described by Rajeev De Mello of Gama Asset Management as a "double whammy to global markets," contributing to the 30-year Treasury yield consistently staying above 5%, its longest stretch since 2007. The "Sell America" debate, which initially emerged during April's tariff shock, has resurfaced. The Treasury's recent estimate of borrowing needs for the current quarter at $739 billion, coupled with Japan's potential need to liquidate its $1 trillion+ holdings of US government debt to fund its own intervention, further exacerbates supply concerns.
Despite rising US yields, the dollar is weakening, with the Bloomberg Dollar Spot Index down approximately 2% since June and weaker against nearly all G-10 currencies over the last month. The term premium on 30-year Treasuries has jumped to 1.56%, the highest since 2013, according to Bloomberg Economics. This uncertainty is leading investors like Steve Brice at Standard Chartered to anticipate a 3-4% fall in the dollar over the next 12 months, despite resilient equities and a low VIX.
